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If you enjoy reading this site, you might also want to check out these Think Services sites:
 Game Career Guide (for student game developers.)
 Indie Games (for independent game players/developers.)
 Finger Gaming (news, reviews, and analysis on iPhone and iPod Touch games.)
 GamerBytes (for the latest console digital download news.)
 Worlds In Motion (discussing the business of online worlds.)
 Game Set Watch (the Group's alt.game weblog.) |
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iSuppli: PS3 Rapidly Approaching Profitability As Costs Decline
by Leigh Alexander
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December 14, 2009
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Sony's still selling its PlayStation 3 at a loss -- but with manufacturing costs on the Slim model lower than ever, the company may soon be able to reach the break-even point on console sales.
Market intelligence firm iSuppli found it costs $336.27 to make a 120GB PS3, which currently sells for $299 in North America. That's a loss of $37.27 for every console sold, but it's the smallest gap in the console's history -- even though the company has aggressively cut the console's price while growing its hard drive since the contentious $599 launch of the 60GB PS3.
In November 2006, around the time of the PS3's launch, iSuppli did an initial tear-down of the console, and found at the time that Sony was taking an estimated loss of $306.85 for its 20GB lower-end model, and another $241.35 loss for each 60GB model, compared against their respective $499 and $599 launch prices.
According to iSuppli's per-item manufacturing cost breakdown, it's still the PS3's Blu-ray drive that costs Sony the most, responsible for $66 of the costs of each PS3. Analysts have often placed the console's early-cycle pricing challenges squarely on the decision to include it.
"Since the introduction of the PlayStation 3 in late 2006, Sony has subsidized the price of every console sold, a deficit the company has made up for with game sales and royalties," says iSuppli analyst Andrew Rassweiler.
"However, with each new revision of the game console hardware, Sony has aggressively designed out costs to reach the hardware and manufacturing breakeven point as quickly as possible," he adds.
Although iSuppli's estimates don't include software, royalties and other costs associated with boxed hardware, the component costs themselves are expected to "decline significantly" in 2010.
"In light of these factors, the PlayStation 3 probably is already at or near the tipping point for profitability," says Rassweiler.
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By the time they've gotten costs down to $250, there will probably already be pressure to lower the price again, thus once again preventing them from turning a profit on their hardware. That's a business I want no part of. Luckily there are several companies more than willing to take the hit so the rest of us can only make software.
Nintendo has it all figured out though; keep costs absolutely as low as possible, turn a profit on everything, and maintain a monopoly over your platform's software. It's good for the rest of us that Microsoft and Sony don't do this, but it ultimately hurts their business.
Yes, definitely.
Sorry I dont think so. PS2 is a very good example and it is a very good business, although the retail price was lower than the cost for a long time.
What I was referring to with that quote was Nintendo's software monopoly on each of their platforms. If Sony and Microsoft had similar monopolies, there'd be nowhere for third-party developers to go. I wasn't saying that loss-leader business is bad necessarily.